China to unleash 700b yuan in reserves cut for some banks

The headquarters of China’s central bank, the People’s Bank of China, is pictured behind an iron chain in Beijing, in this June 21, 2013 file picture. — Reuters pic

BEIJING, June 24 — China’s central bank will cut the amount of cash some lenders must hold as reserves, unlocking about 700 billion yuan (RM432.2 billion) of liquidity, as it seeks to control leverage and support smaller companies.

The required reserve ratio for some banks will drop by 0.5 percentage point, effective July 5, the People’s Bank of China said on its website today. The aim is to support small and micro enterprises, and to further promote the debt-to-equity swap programme, according to the central bank. The cut will apply to major state-run commercial banks, joint-stock commercial lenders, postal banks, city commercial lenders, rural banks and foreign banks.

Such a reduction had been widely expected, especially after China’s cabinet said on Wednesday that it would use monetary policy tools, including cutting reserve ratios for some banks, to boost credit supply to smaller companies.

The central bank is adjusting monetary policy at a time when China’s economy is showing signs of slowing amid an ongoing campaign to clean up the financial sector and worsening trade tensions with the US It will also ease a funding squeeze for lenders, which have to repay money borrowed from the central bank’s medium-term lending facility, put aside cash for the July tax season and upcoming quarterly regulatory checks.

The fund unlocked from the reserve ratio cut shouldn’t be used to support the so-called zombie companies, the PBOC said. — Bloomberg